Further thoughts on businesses and profits

Friedman's position

By addressing companies to take social responsibility, the public "harms foundations of free society" according to Milton Friedman. Relying heavily on arguments of principle - people can only be free in a free market society and governmental interference is intrinsically evil - Friedman fiercely attacks everyone in favour of companies who consider their societal impact.

Friedman's main point is that, if the leaders of stock listed company would invest in something other then financial profit, they would be spending someone else's money for societal purposes. Hereby the business man would be raising taxes, which is a problem, because a) collecting taxes is a monopoly for the government and b) the CEO would not necessarily know how to spend the money in a right manner.

My stand

To me, his argument is completely wrong.

First of all, the reasoning that firms should not act as governments can be rejected on his own free market principle. If shareholders disagree with a/the corporate policy, they can simply withdraw their shares and invest in a company that shares their values. Thus, the free market principle would actually undermine Friedman's argument. Besides, the notion that firms are not to function as a government is short-sighted. Within a firm we accept structures that remind us of a central government - firms are structured in a hierarchical manner for example -, so Friedman's argument would only be valid if he rejected the entire parallel between firms and central governments.

The other part of the argument - CEO's have been selected on their skills to lead a firm, not on their skills of honest distribution of wealth - is an oversimplification of the issue. If you don't know exactly what to do, than just do nothing. Our basic human nature is shaped through trial-and-error, so why not allow for learning in the transition from money-driven firms to people-planet-profit-driven firms?

Not business as usual

The documentary Not business as usual shows the concept of 'B Corporations'. B Corporations are labelled firms who include responsibility for the communities they are embedded in in their corporate DNA. Although this documentary slightly felt as a commercial, it showed me one huge flaw in my initial thoughts on the Friedman statement. 

Just as Friedman is unable to see the world outside his free market paradigma, I only focussed on profit in a calculable terms. I rejected the idea that only short-term financial profit should be taken into account, but I still had a rather abstract view of long-term profits for our ecosystems and the people living there. 

An important addition to my previous statement would be that people simply like to work for the 'good guys'. They enjoy helping each other and working on something way more tangible than financial profit. After all, we all want to be as happy as people in commercials.

  

Comment, 30-12-2014
In rereading my two posts on the Friedman principle (first before reading, than after reading), I can see that my opinion is way more structured in the second post. But I want to make an addition here as well. In the original posts I did not link my initial stand to my more developed opinion.

Originally, I claimed that Friedman's principle was merely a matter of definition. If one could interpret 'profit' as long term (non) financial benefits, then Friedman would be right. As I read the article, I found that the stand Friedman took was in fact based on a strong conviction that firms and the government should be strictly separated. I therefore disagree with Friedman more strongly now.

As I tried to explain above, I think this separation is not just unrealistic (in the sense that firms and the government are way more intertwined already), but also unwanted. Firms have more specific knowledge than a government within their field, which means that they have some sort of responsibility to act in line with that knowledge. Innovation, leading to more sustainable solutions than may be needed by regulations, is a process that is actually initialized by firms, even though it makes firms do more 'good' than they are legally required to do. 

To conclude, I feel my initial stand was short-sighted, but I feel that I was able to argue more clearly in my second post. Still, I feel that I did not clearly explain the development of my stand, which I tried to do in this comment.